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Net profit at Sony fell to $326 million in the period April to June, causing Sony to lower its forecast for the financial year by 17%, citing the slump at Sony Ericsson and fierce competition as rivals try to undercut its Cyber-shot digital cameras and Vaio laptops.

"On digital cameras and camcorders, growth in developed markets such as Europe and the United States slowed and competition intensified, resulting in smaller profits," Sony senior vice president Naofumi Hara told a news conference.

The US economic slowdown, higher raw materials prices and a firmer yen have been slicing into the profitability of Japanese exporters in general, but analysts say Sony is being hit particularly hard.

"Overall, Sony's earnings gave me the impression that the company is in a severe state," says Daiwa Institute Research analyst Kazuharu Miura. "The electronics division seems to be in a particularly tough situation, hit by sharp price falls."

Fresh from its victory over Toshiba in the high-definition format battle, Sony says it is now aiming to turn around its television and video game operations, which have also been major earnings drags.